ABI Blog Exchange

STUDENT LOAN DISCHARGES IN THE 7TH CIRCUIT: SOME THOUGHTS
Authored by: Steven P.Taylor
Student loans have become one of the largest components of debt in American society. This size is a major problem that the bankruptcy system must address to effectuate its policy goals of fresh start (Chapter 7 bankruptcy) and rehabilitation (Chapter 13 bankruptcy).

Posted by Kathy Bazoian Phelps Below is a summary of the activity reported for July 2015. The reported stories reflect: 10 guilty pleas or convictions in pending cases; over 166 years of newly imposed sentences for people involved in Ponzi schemes; at least 11 new Ponzi schemes involving over $112 million; and an average age of approximately 50 for the alleged Ponzi schemers. Please feel free to post comments about these or other Ponzi schemes that I may have missed. And please remember that I am just relaying what’s in the news, not writing or verifying it. Alisa Adler, 54, was charged with running a Ponzi scheme the involved a real estate development business run through ASG Real Estate Services Group. She solicited investor funds to supposedly purchase and develop real estate but instead used the money to make Ponzi scheme payments and for her personal expenses. Will Allen, 36, was indicted for his involvement with a Ponzi scheme run with Susan Daub, 55, through Capital Financial Partners LLC. The scheme involved $31 million and supposedly provided high interest short term loans to athletes. More than 40 people invested in the scheme and were promised 18% returns. John Steven Blount, 54, pleaded guilty to charges relating to a $5.8 million Ponzi scheme that he ran through his company, Professional Consultants LLC.

A recap of the informed opinions (and the discussions they generated) on BankThink this week, including whether independent consultants should be criminally liable for misrepresentations in their reports and whether higher rates will help or hurt banks.

In the recent opinion of Burtch v. Revchem Composites, Inc. (In re Sierra Concrete Design, Inc.), Adv. No. 10-52667 (CSS), 2015 WL 4381571 (Bankr. D. Del. July 16, 2015), the Delaware Bankruptcy Court issued a memorandum opinion following trial on claims asserted by Jeoffrey Burtch, Chapter 7 Trustee of Sierra Concrete Design, Inc. (“Sierra” or “Debtors”), seeking recovery against Defendant Revchem Composites, Inc. (“Revchem”) for alleged preferential transfers under Sections 547 and 550 of the Bankruptcy Code.
In the memorandum opinion, the Court found that Revchem successfully established at trial that each of the payments received by Revchem from Sierra during the 90 day preference period were made in the “ordinary course” of the parties’ business relationship, and were thus shielded from recovery pursuant to Section 547(c)(2) of the Bankruptcy Code.
This opinion is notable because Revchem was able to establish this defense even though it received payments from Sierra during the preference period at a much faster rate (a standard deviation of 27.9 days) than during the pre-preference period.

As Daily Bankruptcy Review reported in The Wall Street Journal, independent film studio Relativity Media LLC filed for bankruptcy this week, weighed down by more than $500 million in debt and recent box-office flops. Relativity, known for TV show’s like MTV’s “Catfish” and “Guy’s Grocery Games,” as well as recent movies including “Black or White” and “The Lazarus Effect,” plans to sell itself at auction, with a group including Anchorage Capital (but not founder and Chief Executive Ryan Kavanaugh) leading the bidding.

As Daily Bankruptcy Review reported in The Wall Street Journal, independent film studio Relativity Media LLC filed for bankruptcy this week, weighed down by more than $500 million in debt and recent box-office flops. Relativity, known for TV show’s like MTV’s “Catfish” and “Guy’s Grocery Games,” as well as recent movies including “Black or White” and “The Lazarus Effect,” plans to sell itself at auction, with a group including Anchorage Capital (but not founder and Chief Executive Ryan Kavanaugh) leading the bidding.

A. Where We Left Off
As noted in Part III, movants seeking approval of structured dismissal motions typically must prove that the proposed dismissal is in the best interest of the creditors. To do so, movants will usually have to prove that the dismissal provides better treatment than would a liquidation. To that end, most structured dismissals contain what are commonly referred to as “bells and whistles” that sweeten the deal for creditors. Unfortunately, many of the bells and whistles commonly included in structured dismissal motions draw the ire of the United States Trustee. This section will identify some of the most common bells and whistles, while the next installment of this series will identify and address the U.S. Trustee objections.
B. Bells and Whistles – Dismissals with Benefits

On Tuesday in Manhattan, the trustee unwinding Lehman Brothers Inc. will ask a bankruptcy judge for permission to pay nearly $2 billion to the defunct brokerage’s unsecured creditors, which would be the third such distribution since he paid off the brokerage’s customers.
If approved by Judge Shelley Chapman, that would bring the total amount returned to creditors to more than $8 billion, a recovery of about 35 cents on the dollar. Combined with distributions made to customers, the total amount recovered in the brokerage’s liquidation would be about $114 billion.
In court papers, lawyers for trustee James W. Giddens said that after the third distribution, further payouts would be contingent on winning or settling pending litigation, which would free up funds currently on reserve.
Mr. Giddens began paying back creditors—former employees, pension funds, banks and investment firms with unsecured claims against the brokerage—last summer after paying back the brokerage’s customers.
The distinction between “customer” and “creditor” is a crucial one in the Lehman case. Customers get 100% of their money back, while unsecured creditors get much less.
Also Tuesday, a federal judge in Chicago will hear Caesars Entertainment Operating Co.’s latest bid for a quick appeal of a recent decision that creditor lawsuits can continue against the casino giant’s parent, Caesars Entertainment Corp.

On Tuesday in Manhattan, the trustee unwinding Lehman Brothers Inc. will ask a bankruptcy judge for permission to pay nearly $2 billion to the defunct brokerage’s unsecured creditors, which would be the third such distribution since he paid off the brokerage’s customers.
If approved by Judge Shelley Chapman, that would bring the total amount returned to creditors to more than $8 billion, a recovery of about 35 cents on the dollar. Combined with distributions made to customers, the total amount recovered in the brokerage’s liquidation would be about $114 billion.
In court papers, lawyers for trustee James W. Giddens said that after the third distribution, further payouts would be contingent on winning or settling pending litigation, which would free up funds currently on reserve.
Mr. Giddens began paying back creditors—former employees, pension funds, banks and investment firms with unsecured claims against the brokerage—last summer after paying back the brokerage’s customers.
The distinction between “customer” and “creditor” is a crucial one in the Lehman case. Customers get 100% of their money back, while unsecured creditors get much less.
Also Tuesday, a federal judge in Chicago will hear Caesars Entertainment Operating Co.’s latest bid for a quick appeal of a recent decision that creditor lawsuits can continue against the casino giant’s parent, Caesars Entertainment Corp.

If you go to the doctor and the doctor prescribes medicine made by a company that the doctor owns shares in, does the doctor have a conflict of interest? What if the doctor is paid for every pill she prescribes? Is that a conflict? Read more here.

This week, the Examiners took up the issue of suffering shoppers in retail bankruptcies. Many said bankruptcy law offers sufficient protections to customers when their favorite stores run into distress, though they acknowledged customers don’t always know how to take advantage of these protections. And while some said the onus is on the consumer to protect himself by knowing the risk involved with retail transactions, others said it is simply good business for retailers to look out for consumers.
Whether shoppers deserve special treatment divided readers on Twitter:

@WSJBankruptcy Gift cards are like unsecured micro loans to the retailer. Honoring them at all is a preference to customers.
— Matthew Skeen (@MattSkeenJr) July 30, 2015

@WSJBankruptcy Customers should not share the pain. Customers should be treated better than GUCs because they are different.
— thomas kim (@tmkr2advisors) July 27, 2015

This week, the Examiners took up the issue of suffering shoppers in retail bankruptcies. Many said bankruptcy law offers sufficient protections to customers when their favorite stores run into distress, though they acknowledged customers don’t always know how to take advantage of these protections. And while some said the onus is on the consumer to protect himself by knowing the risk involved with retail transactions, others said it is simply good business for retailers to look out for consumers.
Whether shoppers deserve special treatment divided readers on Twitter:

@WSJBankruptcy Gift cards are like unsecured micro loans to the retailer. Honoring them at all is a preference to customers.
— Matthew Skeen (@MattSkeenJr) July 30, 2015

@WSJBankruptcy Customers should not share the pain. Customers should be treated better than GUCs because they are different.
— thomas kim (@tmkr2advisors) July 27, 2015

“Dream the impossible dream; eat the impossible sundae…” So the song goes – or rather, went – at The Show Place Ice Cream Parlour in Beach Haven, New Jersey. Sadly, The Show Place and the adjoining Surflight Theatre have closed their doors and will be liquidating their assets in chapter 7. The authors have fond memories of shows at the Surflight and family outings to The Show Place, and we are now in the unenviable position of wishing the institution a melancholy happy trails. So for this installment of Bankruptcy Beach Reading, we take you to Long Beach Island, New Jersey, to bid farewell to the Surflight Theatre and The Show Place.
The Surflight Theatre was founded in 1950, with its first shows taking place in a tent by the beach. As Long Beach Island grew, so too did the Surflight, eventually constructing a 450-seat theater, which has stood in the same location in Beach Haven for the past thirty years. The Surflight put on high-quality shows in its short summer seasons and was a hub of arts and culture in the burgeoning beach communities on Long Beach Island. News sources report that in that time, it gave rise to a number of stage and screen personalities, including Jim Brochu, James Brennan, Charlotte D’Amboise, Ed Dixon, David Hartman, Richard Kind, David Loud, and Seth Rudetsky.

Wall Street Journal
The U.S. may be second fiddle to Europe in the Ryder Cup golf competition, but that's not the case when it comes to investment banking. As Europe's large banks with big investment bank operations talk about doom and gloom, and as their shares plummet, their U.S. counterparts are moving in the opposite direction. ...

I enjoy listening to a variety of podcasts while walking the dog or driving to the office. Podcasts are really amazing thing for those who crave learning, although there seems to be some rule that requires 50 bad shows to appear before you find a really great one. (Have you loaded the Stitcher radio app on your smartphone yet? You really should.) The EntreLeadership podcast is one of the better shows being streamed these days, and I had the pleasure of listing to Dale Partridge talk about his new book, People Over Profits.
As you might guess, the message of the book is that a business will not succeed in the long-run if it places profits over people, despite some evidence to the contrary. Perhaps it is better to say that businesses will be more successful in the long-run if they keep their customer’s best interest at heart. I think it really comes down to establishing trust. We trust that Apple computers are top notch and that Starbuck’s coffee is always great–they have earned that reputation.

On July 29, 2015, Deb Shops SDFMC LLC, in its capacity as debtor in possession, filed 92 preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).
By way of background, Deb Shops SDFMC LLC (“Deb Shops” or the “Debtors”) filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on December 4, 2014 under Chapter 11 of the Bankruptcy Code. By order dated December 5, 2014, the Debtors’ Chapter 11 cases were consolidated for procedural purposes only and therefore are being jointly administered pursuant to Bankruptcy Rule 1015(b).
The Rosner Law Group and ASK LLP represent the Debtors in these various preference cases. The pretrial conference has not been scheduled. These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Kevin Gross.
For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Several of Relativity Media LLC’s largest creditors have joined together in a stalking horse bid for the Hollywood studio that would see the exit of its founder and chief executive, said people familiar with the matter.
Anchorage Capital Group LLC, Luxor Capital Group LP and Falcon Investment Advisors LLC are all part of an offer that will set the minimum floor as bidding for the studio, which on Thursday filed for chapter 11 bankruptcy, begins soon.
However, Ryan Kavanaugh, Relativity’s CEO who has been a lightning rod for controversy as the company behind the Bradley Cooper thriller “Limitless” and reality show “Catfish” has faced financial and legal troubles recently, is not affiliated with the bid, one of the knowledgeable people said. He is not expected to continue as CEO if their bid is successful.
Mr. Kavanaugh is attempting to put together his own bid for Relativity, a person close to the CEO said.
Mr. Kavanaugh started Relativity in 2004 and guided its evolution from an arranger of financing for movies released by studios like Sony Pictures Entertainment and Comcast Corp.’s Universal Pictures into a producer and distributor of movies and television that with interests in such disparate businesses as a for-profit university and a sports agency.